If you keep track of bonds then you understand that enormous buying in bonds has been taking place for a while now.
What we all could not understand was why were institutional traders still buying bonds in such gigantic numbers.
We feel we at this time know the answer by performing technical analysis on numerous markets and looking for correlations between them.
This inter-market analysis of connections among a variety of charts has given us some interesting insight into why institutions have been purchasing bonds for the last 5 months.
It has to do with wood.
No I'm not one fry short of a happy meal.
When the cost of lumber drops, bonds predictably go up. If you think about it, it makes complete sense.
Lumber prices drop when demand drops. In a recession large ticket items like home construction get hit hard since no one has enough money to buy a house or even a car. This drop in demand for lumber makes the price of lumber drop also. Since home construction and the financing of homes, as well as equity lines, make up such a gigantic percentage of our GDP, the drop off in home construction suggests unpleasant things for our economy and stock market and great things for bonds.
What especially gets me infuriated at myself is that I did not see the spot on Fibonacci 50% retracement on the S&P 500 on Monday. I should not have entered long anything until I was certain it bust through this significant level.
In this video I look perform technical analysis on SPY in four time frames and tell you why I think you should shift to cash and keep out of this market or go into a bond ETF fund.
Looking at the weekly chart of SPY we have a Bearish Engulfing candlestick. What also is troubling is that we are extremely close to finishing the neckline and forming a Bearish Head and Shoulders Top. Furthermore the 21 week MA line support has been broke and is now acting as short term resistance. The 8 week moving average line has broken below the 21 week moving average line, but the 13 week moving average line has not. The 13 week MA line is extremely close to falling below the 21 week MA line and if it does, look out below.
The daily chart took additional painful technical damage today confirming the Bearish Engulfing candlestick that formed yesterday. The 8 day moving average line was broke today. The 13 and 21 day MAs are so confined together that we might see a break of both in the next 1 or 2 days! This would be awfully bearish. The crucial support level that needs to hold on the daily chart is $109.21
The hourly chart on SPY looks really horrific. The important support level of 111 was broke. When this support level was broke, stock traders all ran for the way out. Volume picked up on the sell side as more and more investors fled out of the S&P 500. Terror thoroughly wrapped up everyone. What also looks very dreadful is that the 8 and 34 hour MAs have dropped below the 55 hour moving average line.
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